Be Afraid

By William Davis

It’s been a while – a little over 30 years actually – since Ronald Reagan gave us this one:

“The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’“

The President, of course, was referring to the idea that the government is so terrifyingly inefficient that its attempts to help often turn out to be more like the Night of the Living Dead. An ominous-sounding warning to be sure, but in fact, Mr. Reagan delivered his line with comic intent. Then again, it was 1986 – one could still joke a bit about the lurking dangers of an unkillable bureaucracy.

Flash forward 25 years, and the so-called Great Recession has eviscerated around one-third of the typical American’s household net worth. While the Financial Crisis largely resulted from a breakdown of traditional mortgage lending standards, aka affordable-housing mandates, lawmakers pile on with Dodd-Frank and the Consumer Financial Protection Bureau – the most sweeping reanimation of the country’s financial laws since the New Deal. The idea for the CFPB was treacherously simple: Create a new bureaucracy to vet financial products the same way the Consumer Product Safety Commission vets toasters.

Look America, we’re here to help!

Since then, aside from arriving late to the Wells Fargo phony-accounts scandal and putting a few defenseless community banks out of business, the CFPB has done little to assist the government’s encroachment on American citizenry. Naturally, the bureau is hungry to do more…a new way, perhaps, to help slow-moving adults avoid rampant fraud and deception. Well, hey, here’s an idea for us – how ‘bout we get in to the new products business!

That’ll surely help.

And to that perilous end, the CFPB announced last week that it’s launched a “regulatory sandbox” to help fintech firms develop new products and services. By definition (and there is one) the figurative box is a ‘safe space’ in which businesses can test innovative products, services, business models, and delivery mechanism without the normal regulatory consequences. The bureau’s doubly new innovation office…and here’s where it gets scary…is expected to look closely at cryptocurrencies and other financial technologies based on blockchain, private currencies, and microlending.

Uh oh.

What important guys at Ray Dalio’s hedge fund are saying…

“U.S. markets are not in long-term equilibrium. We believe the next move is into cash, as we believe stocks and bonds are going to perform poorly over the next 18 months.”

Greg Jensen, co-chief investment officer, Bridgewater Associates

What the numbers are saying…

$351 million

Assets pulled from ETFs in June, the third month of net redemptions this year and the highest number of monthly outflows in a year since the 2008 financial crisis

What guys from Arkansas who aren’t in trucking or retail are saying…

“We are packed full.”

Joe Rumsey, president of Arkansas-based Zero Mountain Inc. on a record level of beef, pork, poultry, and turkey being stockpiled in U.S. facilities

What guys who said something they wished they hadn’t are saying…

“I will not allow either my good name or the good name of the company I founded and love to be unfairly tainted.”

John Schnatter, founder of Papa John’s International

What the facts are saying…

Issuance of high-yield corporate bonds is on pace to fall 26% this year, according to Fitch Ratings. If the current trend continues, annual issuance would be below $200 billion for the first time since 2011.

On this day in 1996, stock guru Elaine Garzarelli told her clients to get out of the market, forecasting that stocks would drop 15% to 25%, which would put the Dow at about 4300. It helped send stocks plunging. Three days earlier, she told the New York Times that the Dow Jones Industrial Average was heading for 6400.

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